“We used to do a million a year in Libya. Now it’s down to a third of that.” Andrew Graham’s sales agents were in Benghazi, currently the scene of a bitter war between Islamic State and the displaced government. Yet the sales agents still sell his designer wallpaper. “Our partners are now living between Turkey and Libya. They are finding it very hard,” he says.
It’s remarkable they are selling anything at all. But even in the hardest times people still want quality wallpaper, it seems. Mr Graham’s company, Graham & Brown, is a third-generation family firm based in Blackburn. It sells wallpaper to more 75 countries, including China, Russia and former Soviet states. Libya is a challenge, but not insurmountable.
So how do you trade in a war-ravaged nation? Mr Graham reveals his secret: “Credit insurance. It is a big deal. We are relatively small, so we don’t have so much turnover that we can afford to lose money in certain markets.” Normally he gets credit insurance from Coface. “They are very good for stable markets, such as the European Union.” But less so for emerging markets. “For Libya and other markets where there is political uncertainty, such as Nigeria and Russia, commercial credit insurers won’t operate. That is why the government scheme, UK Export Finance, is so useful,” he says.
The latest trade figures show a UK trade deficit of 5.5 per cent of GDP in 2014, the worst since annual records began in 1948
UK Export Finance insures exporters against buyers who fail to pay or merely pay slowly. “It is semi-commercial. You still buy it,” says Mr Graham. “You pay a higher rate than normal, but they will provide credit insurance.”
Use of commercial and state-backed credit insurance has helped Graham & Brown to move into difficult markets. The firm is 70 years old, but only began exporting 15 years ago. “Exporting makes your business stronger. It pays to go further as the European economies are quite static,” says Mr Graham.
The government is keen for other UK small and medium-sized firms to do likewise. Export levels are depressed. The latest trade figures show a UK trade deficit of 5.5 per cent of GDP in 2014, the worst since annual records began in 1948. To close this gap, more British firms need to export. UKTI was one of the few state bodies to get a rise in funding in the latest Budget, with a windfall earmarked for firms looking to crack China. A big part of this drive is educating mid-sized firms about the funding they can rely on when going overseas.
The options are numerous. Invoice finance is popular. Banks and specialist finance houses will turn unpaid invoices, assets or inventory into cash within 24 hours. This takes the pain of collecting invoices from overseas buyers out of the equation.
Supply chain finance provides payments during a hold-up for both buyers and sellers.
Letters of credit are available. The buyer’s bank pays if their client can’t. Opinions vary. “We found letters of credit too cumbersome,” reports Mr Graham.
UK Export Finance does more than provide credit insurance. It will insure investments. This will pay out in case of extra-legal events, such as war or forced nationalisation. It can secure confirmations of letters of credit and raise contract bonds.
The UKTI programme Passport to Export offers a one-stop shop for would-be exporters. It offers an assessment of your readiness to export, workshops on stages of exporting, help with market research and advice on what other assistance you can receive.
Foreign currency hedging is vital. There are more tools than ever, but they come with a warning. Victor Golovtchenko, chief analyst at foreign exchange research organisation Forex Magnates, says: “Companies such as Interactive Brokers, Saxo Bank and TD Direct Investing make the currency futures markets widely accessible to any type of investors at reasonable costs.
“The main challenge for SMEs is now in finding savvy-enough financial executives to take the appropriate hedging decisions that reduce the volatility of the company’s exposure to the foreign exchange market.”
An overlooked tool is private equity (PE). Scottish PE house Dunedin helps its portfolio firms export. Partner Dougal Bennett says: “We have the contacts in overseas markets. We know the pitfalls.” In 2012, Dunedin backed oil and gas industry manufacturer Premier Hytemp in a £34.5-million management buy-out. Dunedin has helped the firm focus on expanding into export markets.
“We have worked closely with various agencies to smooth over paperwork for shipping to France and Romania,” says Mr Bennett. The knowledge a private equity investor brings has helped Premier Hytemp to access funds to invest in machinery. “Writing the cheque is just the start for us. We can help firms turbo-charge their exporting,” he adds.
But companies wanting to check out export markets can get funding via the Tradeshow Access Programme. If you create a stand at an exhibition, UKTI will fund half.
For growth, you can’t beat export. “Get a plane and see your market,” urges Mr Graham. He’s walking the walk. If he can sell to Libya, during the Gaddafi years and their aftermath, anything is possible.